Automaker Leadership Vows Cuts: Are They The Right Cuts?

After that first, humiliating round before Congress, it looks like the automakers have learned a few things: Ford's CEO Alan Mulally promises to work for $1 per year if Ford has to accept government money. What's more, the Ford plan cancels all management employees' 2009 bonuses and merit pay increases for its North American salaried employees. The company also plans to sell its fleet of five corporate aircraft. Similar steps are also promised for the other two automakers. Mulally and GM CEO Rick Wagoner have also announced that they will return to Washington by car this time, rather than by private jet. Chrysler CEO Robert Nardelli will also take a pass on the corporate jet, but his travel plans are secret due to security concerns.

The companies are also looking to swap debt for equity as well as to off-load brands and subsidiaries. GM, for example, is looking at the sale of Pontiac, Saturn and Saab. To simply shut them down would require cash that GM simply does not have. There are also calls for more development of electric cars and research into better batteries.

The United Auto Workers is also holding discussions to figure out what kind of concessions they can make to help the Big Three win the money from Congress. The UAW's legislative director, Alan Reuther, would not say what kinds of concessions the union might make. All he would say was, "we realize that all stakeholders need to come to the table to do what's necessary to ensure the viability of the companies. We're prepared to do our part."

But what will all this accomplish? Will these cuts save the Detroit automakers?

On The Table: Massive Restructuring

The answer to that is a great big question mark. The executive compensation cuts are more for show than for reality. They demonstrate that the executives are committed. Concessions on making more electric cars and investing in that technology is an olive branch to green democrats on the committees that will decide the question of the $25 billion in new loans. Spinning-off subsidiaries and restructuring debt are concrete steps, a massive change in the way these companies do business would be another. All of these are within the power of management, but management alone cannot solve this problem.

The Key to Success: The UAW

The success of this whole process is in the hands of the UAW and the big question is this: Will they be able to do what is necessary to make these companies, now the largest manufacturers in the US, not just viable but thriving? There are a few concessions the union needs to make:

  • Restructure the UAW retiree trust fund

  • Eliminate the jobs banks

  • Bring hourly wages and benefits down to competitive levels

  • Change work rules to permit greater innovation and flexibility

The Bottom Line

It is good to know that some or all of these are under consideration, it will be better to learn that they have been adopted and the normally adversarial relationship between labor and management has been turned to one of cooperation. Both sides need to understand that they are codependent on one another, that they need one another. If they don't, then all sides—including the myriad of businesses, large and small, that depend on the auto industry—will be the worse off for it.